INTRODUCTION

Wealth tax in India is a levy imposed by the Central Government on the taxable
assets of individuals and Hindu Undivided Families (HUFs) including land, buildings,
and cars exceeding specified limits. Wealth tax is an example of a direct tax.

The Wealth Tax Act was introduced in India to lay down the rules and regulations
pertaining to collection of Wealth Taxes. The Act aimed to levy a tax on the wealth
of individuals, Hindu Undivided Families (HUFs), and companies. The primary
purpose of wealth tax is to generate revenue for the government. However, it also
acts as a deterrent for people who hoard large amounts of wealth.

Wealth tax was abolished in the 2015 budget (that was effective FY 2015-16), since
the cost incurred for tax recovery was higher than the benefit emanated. The finance
minister introduced a surcharge in place of wealth tax. The surcharge is levied from
2% to 12% for the highly-rich section of people. Those who have an income above
Rs.1 crore and companies having an income of Rs.10 crore or above will tend to
come under this.

SALIENT FEATURES

Below are the salient features of the Wealth Tax Act, 1957, as it existed prior to its
abolition:

1. Applicability: The Wealth Tax Act applied to individuals, HUFs, and companies. It
taxed the net wealth of these entities as of the valuation date each financial
year.

2. Valuation Date: The valuation date was typically set at the end of the financial
year (March 31st). On this date, taxpayers were required to assess and declare
the value of their specified assets and calculate their net wealth.

3. Specified Assets: The Act specified the types of assets that were subject to
wealth tax. These included residential properties, commercial properties, urban
land, jewelry, bullion, cars, aircraft, yachts, and certain other assets.

4. Exemptions: The Act provided for various exemptions and deductions, such as
exemptions for certain residential properties, agricultural land, and assets held
for religious or charitable purposes.

5. Liabilities Deduction: Taxpayers were allowed to deduct certain liabilities from

their net wealth, reducing their overall wealth tax liability.

6. Tax Rate: The tax rate was set at a flat rate of 1% of the net wealth that
exceeded a specified threshold. In India, the eligible individuals were required to
pay wealth tax on their net worth exceeding Rs. 30 lakhs (as of FY 2014-15).
7. Filing Requirements: Taxpayers subject to wealth tax were required to file
annual wealth tax returns disclosing their specified assets, liabilities, and net
wealth as of the valuation date.

8. Asset Valuation: Valuation of assets was a crucial aspect of wealth tax

compliance. Taxpayers had to determine the fair market value of their assets,
and there were specific rules and methods for valuing different types of assets.

9. Penalties: Non-compliance or under-reporting of wealth could result in

penalties, which were levied as a percentage of the amount of tax sought to be
evaded.

10. Wealth Tax Officer: The tax assessment and collection were overseen by a
designated Wealth Tax Officer who had the authority to make assessments,
demand tax payments, and conduct audits.

WHO IS LIABLE TO PAY WEALTH TAX

Wealth tax is levied on the following persons only-

 An individual
 A Hindu undivided family (HUF)
 A company

A partnership firm is not liable to wealth tax, but the assets of the partnership firm
are charged to tax in the hands of the partners of the firm in the form of “Interest in
partnership firm”. In other words, a partnership firm is not liable to wealth tax, but
the value of the assets held by the firm is to be ascertained, and this value will be
distributed among the partners of the firm and will be charged to tax in the hands of
the partners.
However, where a minor is admitted to the benefits of partnership in a firm, the
value of the interest of such a minor in the firm shall be included in the net wealth of
the minor's parent.

Similarly, an association of persons (not being a cooperative housing society) is

not liable to wealth tax. Still, the assets of the association of persons are charged to
tax in the hands of its members in the form of an “Interest in a partnership firm.”
Wealth tax is levied on the net wealth owned by a person on the valuation date, i.e.,
31st March of every year. Wealth tax is levied at 1% on the net wealth of more than
Rs. 30,00,000.

The following assets are included in an individual’s net worth for the purpose of
wealth tax:
 Immovable property (other than agricultural land)
 Jewellery, bullion and works of art
 Yachts and aircrafts
 Urban land held for investment purposes
The Wealth Tax Act was amended in 2015 to provide for a deduction of up to Rs. 50
lakhs for certain eligible assets. These assets include:
 Equity shares in a company or units of equity-oriented mutual fund
 Debentures or bonds issued by a public sector company or a listed company
 Deposits in banks and post office savings schemes

WEALTH TAX EXEMPTIONS

 Agricultural Land
 Investments in securities
 Houses/plots of the area below 500 sq. Mts
 Houses that are taken as places of business/profession
 Residential properties have been rented for 300 days or more in a year
 Vehicles that are for hire
 Charitable Land
 Jewellery

CALCULATION OF WEALTH TAX

1. Identify the specified assets that are subject to wealth tax. These assets included
residential properties, commercial properties, urban land, jewelry, bullion, cars,
aircraft, yachts, and certain other assets.

2. Determine the fair market value of each specified asset as of the valuation date.
The valuation date was typically set at the end of the fiscal year (March 31).

3. Calculate your net wealth by subtracting the allowable deductions and

exemptions from the total value of specified assets. Deductions typically
included liabilities related to the specified assets, and exemptions applied to
certain types of assets like agricultural land or assets held for religious or
charitable purposes.

4. Apply Tax Rate for wealth tax (e.g., 1%) of the net wealth that exceeds Rs.
30,00,000

5. Multiply the applicable tax rate by the amount of net wealth exceeding the
threshold. This would give the wealth tax liability.

Example: Mr A has the following assets as of 31st March 2020:

- House property (net value) Rs. 60 lakhs
- Equity shares in listed companies Rs. 15 lakhs
- Deposits in banks Rs. 20 lakhs
- Gold bullion and jewellery Rs. 30 lakhs
The net worth of Mr. A is calculated as follows: Rs. 60 lakhs + Rs. 15 lakhs + Rs. 20
lakhs + Rs. 30 lakhs – Rs. 50 lakhs = Rs. 75 lakhs
The wealth tax liability of Mr A would be 1% of Rs. 75 lakhs, which works out to be
Rs. 75,000/- for the financial year 2020-21.
Wealth tax is not levied on agricultural land or any other asset which is specifically
exempt under the Wealth Tax Act.

PENALTIES

The Wealth Tax Act, 1957 included provisions for penalties in case of non-payment
or evasion of wealth tax. Penalties were imposed for various violations and non-
compliance under the Act.

a. Under-reporting of Wealth: If a taxpayer underreported their wealth or assets,

the Act prescribed penalties as a percentage of the amount of tax sought to be
evaded. The specific penalty rates varied depending on the severity of the
underreporting.

b. Non-Filing of Wealth Tax Return: Taxpayers who were required to file wealth
tax returns but failed to do so could be subject to penalties.

c. Failure to Furnish Information: Taxpayers were required to furnish accurate and

complete information to the Wealth Tax Officer. Failure to do so could lead to
penalties.

d. Obstructing a Tax Authority: Obstructing or interfering with a tax authority

during the assessment process could result in penalties.

e. Other Violations: The Act contained provisions for penalties related to other
violations and non-compliance issues that may arise under the wealth tax
regime.

CONCLUSION

Wealth tax in India is a levy on the assets of individuals who are eligible for the tax.
The Wealth Tax Act, which was enacted in 1957, provides for the imposition of
wealth tax on individuals and companies. Wealth tax is levied at the rate of 1% on
the net value of an individual’s assets, which includes property, jewellery, shares and
other investments. The tax is imposed on the basis of the financial year and is
payable on the 31st of March every year. Individuals who are eligible for wealth tax
must file a return with the Income Tax Department. The return must be filed on or
before the 30th of June every year.